Up to 60 posts are expected to be lost at Park Lane College, Leeds, as it struggles to save pound;2 million.
Principal Tony Longworth said the situation had arisen through failure to hit target numbers during 20023, notably in recruiting sufficient full-time adult equivalents. It was also badly hit by the change in funding formula applying to part-time adults.
A 30-day consultation period is now under way. Mr Longworth hopes that enough staff will have volunteered for redundancy by early November to avoid compulsory cuts. It is thought 20 to 25 teaching jobs could be affected.
Staff are being asked to consider options such as reduced weekly hours, extra unpaid holiday, and also the possibility of retiring and then returning on a part-time, fixed-term contract. Savings have already been made by freezing vacancies, resignations, non-renewal of fixed-term contracts and cuts in hours.
"We are talking to all unions and staff about ideas that will help still further," said Mr Longworth.
However, Natfhe, the lecturers' union, has reacted angrily. "Park Lane is supposed to be a beacon college, a demonstration of best practice in further education," said regional officer Ian Owens.
"Natfhe members have earned it that reputation but now they're expected to pay the price for management incompetence.
"Colleges have been aware of changes to the funding methodology for over a year - yet Park Lane has done nothing until a crisis has hit it in the face.
"Redundancies will impose extra burdens on the staff that remain, with a consequent effect on the students' experiences at college. It would be naive to assume that a large swathe of redundancies will not have an effect on course quality."
National Union of Students officials fear that members will suffer. "We understand that there will be compulsory cuts in areas such as careers guidance that will have a devastating effect," a spokesman said.
However, Mr Longworth could not confirm that any specific posts would be axed at this stage. He hopes the college will emerge without reducing provision for students.
"The three-year funding programme should help us in future," he said. "We will be able to take experience out of this to ensure, as far as possible, that we don't get a recurrence."